By Murari Chaturvedi
By Accommodation Times (www.accommodationtimes.com)
Finance in the backbone of every business, and real estate is no exception, Real Estate is capital intensive industry where huge funds are required. There are many segments which require financing e.g. For acquiring property, construction, reconstruction, renovation or repairing your property. Housing Finance has emerged as a big segment, where a number of housing finance companies are working. In 1977 the first housing finance company namely ‘ Housing Development Finance Company’ (HDFC) was established in Mumbai in housing finance segment. Right from the start HDFC defined lending norms for individuals for purchasing a house with repayment in monthly installments over a period of upto 20 years. In 1987 National Housing Bank (NHB) was established by the Government of India to regulate the housing finance sector in the Country. NHB was to refinance the various housing finance companies against the housing loans they have given to individuals. To-day there is well documented process to give loans to individuals which is followed by all the housing finance companies. There is hardly any market for such a long liability so by compulsion HFC’s borrow for short period for meeting its long term needs and thereby unwittingly gets into the mis-match trap. But the housing finance market in India has recorded robust growth right from the beginning. The increasing loan tenures, increasing loan-to-value ratio and rise in the installment to income ratio, are precipitating high growth rates in the housing finance sector. Financing a building construction project, though accutely needed, was given lukewarm treatment in the beginning, but is accelerating gradually. The government has not yet recognised construction as an industry, hence it is difficult to get project finance from banks and other financial institutions. Project financing is basically financing real estate projects in residential, commercial and long term infrastructure is based upon a complex financial structure, where project and equity used to finance the project rather than the general assets or creditworthiness of the owner. The finance is typically secured by the project assets producing contracts. Presently the real estate financing is growing steadily and creating valued finished property. Fortunately the shadow of sub-prime rate model of financing the housing sector have not fallen on the real estate financing in India, as has happened in USA and Europe.